This is the sixth installment in an ongoing series where Marc Bautis, Wealth Manager and Founder of Bautis Financial, comments on hot topics in the financial industry. Today, Marc is joined by Kayla Waller, Bautis Financial’s Paraplanner.
There’s a New Member in the $1 Trillion Club
Facebook’s market cap hit $1 trillion this week and they became the fifth member of the club, along with Apple, Microsoft, Amazon and Google.
Facebook’s stock story reminds me a lot of Netflix’s. Ever since Netflix went public in 2002, there has always been a reason not to invest in them. First, they were going to get crushed by similar services from Blockbuster, Redbox, Walmart and Apple. Then, they were paying too much in content fees. Then, the streaming services were going to wipe them out. Through everything, the stock has continued along. It has it’s down periods like in July 2018 when the price was almost chopped in half, but Netflix continues adding new subscribers quarter after quarter.
It’s a similar story for Facebook. When they went public in 2012, the question was: How are they going to make money? Then, when they figured it out through advertising, next was how Facebook was now “uncool” and going to be the next Myspace. Every month, there seems to be the threat of legal and regulatory action against them. Everything from being a monopoly, to influencing elections, to how they sell and keep private information. The vitriol towards FB seemed to be the one thing Democrats and Republicans agreed on last year. But like Netflix, Facebook’s stock has continued to chug along.
Who is next to join the $1 Trillion club? Right now, it’s anyone’s guess. Tesla, another company that sparks controversy, is in the lead at $650 billion. But that could quickly change.
It’s Never Too Late to Start
I always love a good success story. Bill (not his real name) started working with me 10 years ago. At that time, he had $0 saved for retirement. If he continued on his path, he never would’ve been able to retire. But going forward, Bill committed to saving the max into his 401k each year. We also incorporated a Roth IRA savings strategy on top of that. With his great discipline over the past 10 years, he is on track to retire in 10 more years at age 61. It’s never too late to start saving for a goal like retirement, but the longer you wait the harder it gets to achieve it.
Is Investing in Stocks the Equivalent of Corporate Gambling?
Um… No. Investing in stocks is not corporate gambling.
When you buy a lottery ticket, bet on a sporting event, or play roulette at the casino, you are participating in a game where the odds are against you. You may have streaks where you win big, but if you play long enough you will lose. In this article, NJ.com details the odds of winning their Mega Millions and Powerball game. To summarize: they are not very good.
Stocks rise over time because the earnings of good companies go up over time. Earnings will ebb and flow with the economic cycle and events going on in the company’s specific industry. This is why you may see some disparity over a company’s earnings and how their stock price reacts to it. But over the long term, there definitely is a correlation between the two.
If you are trading meme stocks and buying bitcoin just because they seem like they will never stop going up, then yes, you can equate that to gambling. With meme stocks, they become horrifically overvalued and you are just hoping that the momentum will continue. And with bitcoin, it’s hard to put a value on the worth of it.
This leads into another observation about investing: Downside risk matters. When the markets and stocks are going up it’s easy to forget that at some point they can come back down. Understanding and being smart about the risk you are taking on is important. If you buy a stock at $100 and it rises 50% to $150, just a 33% drop will bring it back down to where you started. Conversely if the stock you buy for $100 drops 50% to $50, you need a 100% gain to get back to where you started.
Is the 10-Year Treasury Note Signaling a Decrease in Investor Optimism?
Commentary by Kayla Waller.
Treasury yields influence many things within the economy. For instance, they help set borrowing costs on everything from mortgages to corporate bonds. Generally, longer-term yields rise when growth expectations improve and decline when expectations weaken.
During the first three months of the year, yields rose — which was largely driven by optimism regarding business reopenings. During the past three months, rates have slightly fallen, reflecting increased inflation expectations. On June 30, the yield of the benchmark 10-year U.S. Treasury note was 1.49%. This is 0.89% higher than where rates were at the end of last year, but still down from 1.74%, which we saw at the end of March.